Ty Jameson

A recent decision from the Eleventh Circuit involving allegations of fraud in Ford’s marketing of Shelby Mustangs highlights how Rule 23(b)(3)’s predominance and superiority requirements can defeat class certification in cases where reliance is an element of the plaintiffs’ claims. Cases such as this one illustrate why the necessity of proving reliance on an individual basis is a powerful weapon against class certification.

Despite the individualized issues typically inherent in claims for fraud, the Eleventh Circuit in Tershakovec v. Ford Motor Co., Inc. was faced with a district court order that certified multiple state-law classes. No. 22-10575, 2023 WL 4377585 (11th Cir. July 7, 2023). On appeal, the Eleventh Circuit gave a much closer look at the elements of the state laws at issue and narrowed the claims that could be certified for class treatment. This post breaks down Tershakovec to demonstrate how predominance and superiority arguments can defeat certification of consumer fraud classes.

Background to Consumer Fraud Classes

Before diving into Tershakovec, it is useful to understand how courts usually treat, and often deny, certification of consumer fraud classes. Courts often deny certification on the ground that the predominance test is not satisfied because these claims often involve a fact-intensive inquiry into whether each plaintiff relied on the alleged misrepresentations.[1]

As noted in Newberg and Rubenstein’s treatise on class actions, courts are especially prone to deny certification in large, multi-state consumer fraud class actions where choice of law rules call for the application of multiple states’ laws. See Newberg & Rubenstein on Class Actions § 4:61 (6th ed.). Even the drafters of Rule 23(b)(3) commented on whether claims for fraud are proper for class certification. The drafters wrote that “a fraud case may be unsuited for treatment as a class action if there was material variation in the representations made or in the kinds or degrees of reliance by the persons to whom they were addressed.” Rules Advisory Committee Notes, 39 F.R.D. 69, 103 (1966).

With this background in mind, we now turn to the district court’s class certification order in Tershakovec.

District Court Certifies Multiple State-Law Classes

Tershakovec involved a putative class action of purchasers of Ford’s Shelby GT350 Mustangs. The Shelby Mustang is a high-performance vehicle named after Carroll Shelby, who was portrayed by Matt Damon in the 2019 film Ford v. Ferrari. Ford advertised Shelby Mustangs as “an all-day track car that’s also street legal.” However, plaintiffs purchased the two lowest trims out of the five offered—the “Base” and “Technology” trims. These two trims lacked transmission and differential coolers, which are designed to prevent engine overheating. Lacking transmission and differential coolers, these lower trim Shelby Mustangs reverted to “limp mode” at high RPMs—a self-preservation status that reduces the vehicle’s power, speed, and performance to avoid engine damage.

Plaintiffs alleged that their vehicles unexpectedly entered limp mode and that their vehicles were essentially unusable for sustained track driving. Plaintiffs brought a variety of claims under the statutes and common laws of several different states. Although the plaintiffs also included claims for breach of express and implied warranties, this post focuses on the plaintiffs’ claims for fraud, which alleged that Ford falsely advertised the Shelby Mustangs as “track ready.”

The district court largely granted the plaintiffs’ motion for class certification. Tershakovec v. Ford Motor Co., 546 F. Supp. 3d 1348 (S.D. Fla. 2021). In doing so, the district court had to address whether individualized issues of reliance predominated over common questions. The district court discussed a few federal court decisions allowing for class-wide proof where the defendant made uniform representations to the class such that reliance could be presumed.[2] The district court determined that Ford’s representations to the plaintiffs about the Shelby Mustangs were uniform and that plaintiffs could not have known from Ford that their cars were incapable of completing a full track day. In weighing common versus individualized issues, the district court ruled that Ford’s “uniform course of conduct” outweighed “the dearth of evidence pointing to individualized reliance issues” stemming from Ford’s communications.

While the district court viewed the predominance inquiry as “narrowly” tilting in favor of class certification, the superiority analysis “help[ed] push it over the edge.” At most, the individual plaintiffs stood to recover $9,000 each. Thus, the district court concluded, a class action was a superior method to litigating these claims on an individual basis because the recovery would be swallowed by litigation costs.

The district court also concluded that a class action would be manageable. Although the district court noted that manageability was a concern due to numerous state law classes, it determined that these concerns were insufficient to prevent certification. The district court’s plan to address the manageability concerns was to use jury instructions and multiple verdict forms that ticked through the elements of the various state-law fraud claims.

Finally, the district court turned to a state-by-state analysis to determine which state classes could be certified. Under Florida’s choice of law rules, plaintiffs’ claims were governed by the laws of the states where they purchased the vehicles. The district court analyzed the laws of the states where the named plaintiffs purchased their Shelby Mustangs and provided a cursory analysis of those state laws to determine whether they required plaintiffs to prove reliance. Although the district court recognized that some of these laws required individualized proof of reliance, it concluded that the mere possibility of individual reliance issues does not defeat predominance. The district court certified a mixture of statutory and common law fraud classes from nine states.[3] Each class was defined as “All persons who purchased a Class Vehicle from a Ford-authorized dealer or distributor located in [insert state here] before April 1, 2016.”

Eleventh Circuit Reins in District Court’s Certification Order

The Eleventh Circuit granted Ford’s petition under Rule 23(f) to appeal the district court’s certification order. The Eleventh Circuit’s opinion in Tershakovec more closely resembles how other courts have treated consumer fraud class actions than did the district court’s order. The Eleventh Circuit stated that the district court “leaned too heavily on the notion that reliance can sometimes be presumed” and that “overgeneralizing the presumption-of-reliance issue” was the “root of the district court’s error.”

A presumption of reliance may sometimes apply, but only if the relevant state law allows for that presumption. States’ fraud-based causes of action differ in terms of whether proof of reliance is required and how a plaintiff may establish that he or she reasonably relied on alleged misrepresentations. Thus, the Eleventh Circuit was tasked with determining “whether each cause of action at issue here requires proof of reliance and, if so, whether and under what circumstances a presumption of reliance is appropriate.”

To begin, the Eleventh Circuit discussed how presumption of reliance often turns on whether a fraud-based claim alleges affirmative misrepresentations or omissions (i.e., non-disclosures). Courts have been more apt to allow for a presumption of reliance when the case involves omissions.[4] Plaintiffs argued that their case was solely about omissions—that Ford failed to disclose that the Shelby Mustangs’ two lowest trim levels are not capable of completing a full track day. The Eleventh Circuit disagreed, holding that this case is about misrepresentations, not omissions. The plaintiffs alleged that Ford misrepresented all Shelby Mustangs as “track capable.” The omission—that the lower trim levels are not track capable—was only derivative of the affirmative misrepresentations.

With the initial analysis of affirmative misrepresentations versus omissions out of the way, the Eleventh Circuit then took a deep dive into the details of the state laws at issue. The Eleventh’s Circuit’s opinion devotes far more time and analysis to whether each state law required plaintiffs to prove reliance on an individualized basis. The plaintiffs’ claims were grouped into three categories.

The first group consisted of causes of action that do not require proof of reliance. Because these causes of action did not require plaintiffs to prove reliance, the Eleventh Circuit held that Rule 23(b)(3)’s predominance requirement posed no barrier to class treatment of these claims and affirmed certification of these classes.

The second group consisted of the opposite—causes of action that required the plaintiff to prove reliance affirmatively, without allowing for any presumption. Although some states had not directly ruled on this issue, the Eleventh Circuit declined to expand state law to include a presumption when state law did not provide a clear indication that a presumption is permissible. The Eleventh Circuit reversed certification of the four claims that fell under this second category.

Finally, the third group consisted of causes of action where proof of reliance is required but reliance may be presumed under certain circumstances. Two claims fell in this category, both the California statutory claim and the California common-law claim. One scenario under which California statutory law allows for a presumption of reliance is where “the defendant so pervasively disseminated material misrepresentations that all plaintiffs must have been exposed to them.” California common law allows for a presumption of reliance “when the same material misrepresentations have actually been communicated to each member of a class.” The Eleventh Circuit remanded these claims to the district court to determine whether these preconditions to a presumption of reliance were satisfied.

After discussing the predominance inquiry, the Eleventh Circuit then turned to the superiority analysis. Ford argued that the class action was unmanageable because jurors would have to keep track of which plaintiff came from which state and what the elements and burdens of proof are under each state’s laws. The Eleventh Circuit expressed skepticism of the district court’s plan to address these manageability concerns through use of jury instructions and multiple verdict forms. The Eleventh Circuit instructed the district court on remand to consider the manageability concerns anew and “more clearly articulate a plan for addressing them to ensure that the difficulties of managing the class action do not impede the fair and efficient adjudication of the case.”

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Tershakovec demonstrates how the predominance and superiority requirements pose barriers to class certification when plaintiffs must prove reliance, especially when multiple states’ laws are at issue. An effective defense in opposing certification will entail detailed research into the elements and burdens of each cause of action. As the Eleventh Circuit put it, the predominance inquiry turns on “(1) whether those laws require proof of reliance, (2) if so, whether they permit reliance to be presumed, and (3) if so, under what circumstances.” Defense counsel will do well to thoroughly research applicable state law to answer these questions.

[1] See, e.g., Brown v. Electrolux Home Prods., Inc., 817 F.3d 1225 (11th Cir. 2016) (denying certification of putative class of consumers alleging fraud against manufacturer of front-loading washing machines); Gunnells v. Healthplan Servs., Inc., 348 F.3d 417, 434-35 (4th Cir. 2003) (denying certification of claims under South Carolina law for fraud and negligent misrepresentation).

[2] See, e.g., Mullen v. GLV, Inc., 330 F.R.D. 155 (N.D. Ill. 2019) (allowing for class-wide proof of reliance).

[3] On appeal, Plaintiffs no longer pursued their claims under the laws of two of the states (Oregon and Illinois).

[4] See Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153 (1972) (holding that positive proof of reliance is not a prerequisite to recovery where the case involved a failure to disclose).

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